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Malawi, others face debt distress risk

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Ben Kalua

The International Monetary Fund (IMF) has ranked Malawi among regional countries facing a threat of continued rising debt to Gross Domestic Product (GDP) ratio due to global economic woes, coupled with structural domestic challenges.

The IMF has since warned that debt vulnerabilities remain elevated in Sub-Saharan Africa, with about 20 countries either at high risk of debt distress or already in debt distress.

African countries in high risk of debt distress include Burundi, Cabo Verde, Cameroon, Central African Republic, Comoros, Djibouti, Ethiopia, The Gambia, Ghana, Guinea Bissau, Kenya, Malawi, Sierra Leone, Zambia,

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IMF Head of the Regional Studies Division in the African Department Papa N’Diaye said in a podcast released by the multilateral lender that debt burden in the region was very heavy at a time the social and development needs are very large.

This comes as a recent report by the Ministry of Finance’s Debt and Aid Division shows that between June 2020 and June 2021, Malawi’s total public debt stock went up by 34 percent from K4.1 trillion to K5.5 trillion.

This represents 59 percent of the country’s GDP, up from 48 percent at the end of June 2020.

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N’Diaye said debt service as a ratio to revenue has been increasing, adding that the debt burden is very heavy at a time when the social and development needs are very large.

“Unsustainable debt could lead to debt distress, where a country is unable to fulfill its financial obligations and resorts to debt restructuring,” N’Diaye said.

Last month, the United Nations Economic Commission for Africa (Uneca)—a UN agency mandated to support countries in the sub-region achieve inclusive industrialisation for the reduction of poverty and inequality—indicated that more than half of countries in the sub-region have relatively high government debt to GDP ratios.

Speaking at the opening of a virtual High- Level Policy Dialogue for Southern Africa on Wednesday, Uneca Sub-regional Office for Southern Africa Director Eunice Kamwendo said given the status quo, mobilising sufficient financing remains a major challenge to achieving sustainable development aspirations.

In an interview yesterday, University of Malawi-based professor of economics, Ben Kalua, lamented the rising debt levels in the country, which he said is threatening stride towards economic recovery and growth.

He said it was saddening that the country is crawling back to the pre-Heavily Indebted Poor Country (Hipc) and Multilateral Debt Relief Initiative state when, in 2006, it got relieved of its debt.

“This is a very worrying trend. We have been piling debt upon debt and been failing to settle it.

“We have been obsessed with addressing the debt level in an attempt to settle the debts without addressing the root cause that is why it keeps on accumulating. We need to sober up and thoroughly review the recurrent budget and cut on unnecessary expenses,” Kalua said.

When presenting the 2022-23 National Budget in Parliament recently, Finance Minister Sosten Gwengwe said the government intends to stabilise the debt creation processes and embark on a downward debt trajectory in subsequent budgets.

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